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In an assignment of a mortgage as collateral security, a recital of the consideration is not alone constructive notice that the assignee holds the mortgage as security for that sum. Thus where a mortgage, securing a promissory note, not due, for fifteen hundred dollars, was assigned absolutely as security for a loan of three hundred dollars, and this sum was recited as the consideration for the assignment, and subsequently the assignee pledged the mortgage for a loan of twelve hundred dollars, it was held that the first pledgor could not redeem the mortgage from the last assignee, except upon payment of the sum which the latter had advanced upon it.' The recital in the first assignment, of the consideration, was not sufficient to put the last assignee on inquiry, or to prove fraud on his part.

§ 142. A delivery of a note or bond and mortgage as collateral security, without any written assignment, is a valid equitable pledge of those securities, which courts of law will take notice of and protect. A negotiable note may be pledged by delivery without indorsement, in which case the legal title will remain in the payee, but he will hold this title for the benefit of the pledgee, so long as the latter retains possession of the note as security. The payee may, while the note is so held, indorse it, and thereby transfer the legal title to another, who will then hold such title as it was before held by the payee, that is, subject to the equitable claim of the pledgee.

1 Briggs v. Rice, 130 Mass. 50, 51. "As a prudent man taking a note not yet due, it was sufficient for the assignee to know that the assignment transferred to him a good title to the mortgage security. It is not enough that an over prudent and cautious person, if his attention had been called to the circumstance in question, would have been likely to seek an explanation of it." Per Colt, J.

2 Crain v. Paine, 4 Cush. (Mass.) 483, 1 Am. Dec. 807; Dickey v. Pocomoke City Nat. Bank, 89 Md. 280, 43

Atl. Rep. 33; Crane v. Gough, 4 Md. 316; Kamena v. Huelbig, 23 N. J. Eq. 78; Galway v. Fullerton, 17 N. J. Eq. 389; Prescott v. Hull, 17 Johns. (N.Y.) 284; Runyan v. Mersereau, 11 Johns. (N. Y.) 534; Bank of Woodland v. Duncan, 117 Cal. 412, 49 Pac. Rep. 414; McArthur v. Magee, 114 Cal. 126, 130, 45 Pac. Rep. 1068; Adler v. Sargent, 109 Cal. 42, 41 Pac. Rep. 799.

Proctor v. Baldwin, 82 Ind. 370; Kavanaugh v. Brodball, 40 Neb. 875, 59 N. W. Rep. 517.

Non-negotiable paper may, like that which is negotiable, be effectually pledged by indorsement and delivery by the payee or owner' of such paper, or by delivery without indorsement. A pledgee of bonds of a corporation which are secured by a mortgage is entitled to a proportionate part of the security; and though the pledge was made by the corporation itself, the pledgee is entitled, upon a foreclosure of the mortgage, to prove the whole amount of his bonds, and to share in the distribution up to the amount of his debt, and is not limited to proof of an amount simply equal to the amount of his debt.2

A promissory note or a corporate bond made negotiable in form, and delivered before maturity, confers upon the holder a title which is not subject to equities existing between the original parties; and if such note or negotiable corporate bond be secured by a mortgage, the mortgage being but an incident of the debt, the negotiable character of the latter is imparted to the former, to the extent that the assignee of a mortgage securing such negotiable debt, taking it in good faith before maturity, takes it free from any equities existing between the original parties.'

But if the debt be not negotiable, the pledgee of the mortgage will take it subject to the equities between the original parties. An ordinary mortgage bond being non-negotiable, a pledgee of a mortgage and mortgage bond will hold his pledge subject to existing equities between the original parties. Thus, a mortgage and bond executed to secure a vendor under a con

1 Norton v. Piscataqua Ins. Co., 111 Mass. 532; Jones v. Witter, 13 Mass. 304.

2 Duncomb v. New York, Housatonic and Northern R., 84 N. Y. 190; Lehman v. Tallassee Manuf. Co., 64 Ala. 567; Morton v. New Orleans & Selma R. Co., 79 Ala. 590, 622; Dickey v. Pocomoke City Nat. Bank, 89 Md. 280, 43 Atl. Rep. 33.

3 Jones on Mortgages, § 834.

In a recent decision in Minnesota it was said that "it is the settled law of

this state that a mortgage has none of the privileges of negotiable paper, but is a mere chose in action; hence an assignee thereof takes it subject to any defense that exists between the original parties, unless they are equitably estopped by their acts, or otherwise, from asserting it as against the assignee." Moffett v. Parker, 71 Minn. 139, 142, 73 N. W. Rep. 850, per Start, C. J. The grounds of this decision are not apparent.

tract for a purchase of land, and not in payment of an installment of the purchase money, not being negotiable securities, are subject in the hands of an assignee to the equities existing between the original parties; and upon a rescission by them of the contract of sale, the principal indebtedness is extinguished, and the validity of the bond and mortgage destroyed.'

§ 143. A mortgage note or bond without the mortgage may be the subject of a pledge, and will give the pledgee the benefit of the mortgage security. It would seem that ordinarily a simple transfer in absolute form of a mortgage note to a creditor, as security for a debt, is to be regarded as a pledge rather than a mortgage. Such a transfer carries the legal title to the note and the equitable title to the mortgage property. It carries with it the mortgage lien, as an accessory to the debt; and it carries with it any other lien which secures such principal obligation.

The first pledgee of a mortgage note or bond may repledge it with like effect; or he may by agreement with the mortgagor transfer the mortgage note to another who advances or pays to the first pledgee the amount due him upon the security, whereupon the latter transferee is subrogated to the rights of the former, and will hold the note and mortgage as security for the money advanced.*

Where one borrowed money from bank, purchased land therewith, sold the same, giving a bond for title and taking the note of his vendee payable to his order, and subsequently deposited with the bank, as collateral security for his debt, this note without indorsement and the deed which he had taken to himself, the bank stood in the position of a purchaser of the

1 Wanzer v. Cary, 76 N. Y. 526.

2 Morris Canal & Banking Co. v. Fisher, 9 N. J. Eq. 667; Lowenthal v. McCormick, 101 Ill. 143; Logan v. Smith, 62 Mo. 455; Whittemore v. Gibbs, 24 N. H. 484, 487; Quimby v. Williams, 67 N. H. 489, 493, 41 Atl. Rep. 862.

Kamena v. Huelbig, 23 N. J. Eq. 78; Mechanics' Building Association v. Ferguson, 29 La. Ann. 548; Swope v. Leffingwell, 72 Mo. 348.

'Lowenthal v. McCormick, 101 Ill.


note, and its equity to hold the land subject for the loan was superior to the lien of any judgment rendered against its debtor after the deposit of the note and deed as collateral.'

§ 144. A debtor may give his own note and mortgage as collateral security for another note made by him, or for any distinct debt. But there must be a debt to be secured distinct from that created by the note and mortgage, otherwise these create the principal debt. Thus if a note and deed of trust be given, on the purchase of land, for a portion of the purchase money, they are not collateral security, but the principal debt; and they are not converted into collateral security by the vendor's giving the purchaser a written agreement to accept a less sum if paid within a short period, instead of the period expressed in the note, and to assign the note and mortgage to enable the purchaser to borrow the money. The note and mortgage in such case are merely evidence of the original indebtedness.2

III. Pledges of Insurance Policies.

§ 145. A life insurance policy may be effectually pledged by delivery either with or without a written assignment, although

1 Smith v. Jennings, 74 Ga. 551.

2 Harding v. Commercial Loan Co., 84 Ill. 251. See Morris Canal & Banking Co. v. Fisher, 9 N. J. Eq. 667,685, 701; Seymour v. Lewis, 19 Wend. (N. Y.) 512. But see Atlantic F. & M. Ins. Co. v. Boies, 6 Duer (N. Y.) 583.

Collins v. Dawley, 4 Colo. 138, 34 Am. Rep. 72; Norwood v. Guerdon, 60 Ill. 253; Tateum v. Ross, 150 Mass. 440, 23 N. E. Rep. 230; Gilman v. Curtis, 66 Cal. 116, 4 Pac. Rep. 1094; Hewins v. Baker, 161 Mass. 320, 37 N. E. Rep. 441; Norton v. Piscataqua Ins. Co., 111 Mass. 532; Currier v. Howard, 14 Gray (Mass.) 511; Palmer v. Merrill, 6 Cush. (Mass.) 282, 52 Am. Dec. 782; Crain v. Paine, 4

Cush. (Mass.) 483, 50 Am. Dec. 807; Ellis v. Kreutzinger, 27 Mo. 311; Grant v. Kline, 115 Pa. St. 618, 9 Atl. Rep. 150.

In England policies of life assurance are frequently the subjects of mortgages. The mortgage is formally drawn with full and elaborate recitals, covenants, and powers. It assigns the policy, with a proviso for redemption upon the payment of the debt secured. It contains covenants that the mortgagor will keep up the assurance and will pay the premiums, and provides that if the mortgagor fails to do so, the mortgagee may advance the moneys for this purpose, and the policy shall stand charged for the payment

the policy contains a condition that it shall be void if assigned without the written consent of the insurers. The condition. does not prevent the transfer or pledge of the policy. It reserves to the insurers the right to give or refuse their consent to such transfer; and the insurers may at their election avoid the policy if it be transferred without their consent. The effect of the condition is to defeat the policy; not to defeat the transfer. "The same reasoning applies to provisions requir ing that assignments should be in writing, or requiring duplicate or certified copies to be delivered to the company at any particular place."" Under such provisions it seems that the issuing of a paid-up policy by the insurance company in place of the original policy after an assignment of the latter without its consent is a waiver of the requirements."

Such a pledge having been made to a person residing in the state in which the insurers were chartered as a corporation, he may in his own name by a bill in equity, or in the name of the administrator of the insured, enforce his claim, if the company see fit to waive the condition, and the administrator could not defeat the prosecution of the suit. If an administrator be appointed in Illinois, where the deceased had his domicil, and he brings suit there against the insurers, and obtains an injunction against the company's paying the policy to a creditor holding the policy in pledge, the pledgee having been appointed ancillary administrator in Massachusetts, where the insurance company was incorporated, may maintain a suit

of such advances. A power is given to the mortgagee in case of default to sell the policy at public auction or private sale, or to surrender it to the office which issued it. Frequently a surety joins in all the covenants of the mortgage.

Such a mortgage of a policy affords a much better security than a pledge, especially if this be made without writing. For a form of such a mortgage, see Davidson's Precedents in

Conveyancing, 4th ed. 1881, vol. 2, pt. 2, p. 490; and for observations upon such mortgages, see same, pp. 122-136.

1 Merrill v. N. E. Mut. Life Ins. Co., 103 Mass. 245, 4 Am. Rep. 548; Hewins v. Baker, 161 Mass. 320, 37 N. E. Rep. 441.

'Hewins v. Baker, 161 Mass. 320, 37 N. E. Rep. 441, per Morton, J.

8 Hewins v. Baker, 161 Mass. 320, 37 N. E. Rep. 441.

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